Escrow account law unnecessary, says Hiranandani

The managing director of Hircon International, Darshan Hiranandani has criticised the newly introduced escrow account law, describing it as an unnecessary extra cost.
Escrow account law unnecessary, says Hiranandani
By Administrator
Wed 05 Sep 2007 01:26 PM

The managing director of Hircon International, Darshan Hiranandani has criticised the newly introduced escrow account law, describing it as an unnecessary extra cost.

Escrow accounts were launched at the beginning of August in a bid to increase transparency within the regional property market.

The introduction of the account is a result of Law No. 8 which asserts mandatory use of the account when buying an off-plan property.

So far three banks have announced the introduction of the accounts, HSBC, Dubai Islamic Bank and Badr Al-Islami, the Islamic banking division of Mashreq.

The developer receives the purchaser's funds when the consultant for the project certifies that a certain point in building's construction has been achieved.

The Land Department needs to be informed of all disbursements, and penalties will be levied for improprieties, such as collusion between developers and consultants.

The law aims to force developers to stick to the required schedule, and to protect investors from unscrupulous industry members. However, property developer Hiranandani questioned the objectives of the accounts.

"I don't think the law will give potential customers more faith in purchasing a property. The customer is the best regulator, since they rely on personal experience and word of mouth. Why vilify private developers. Private developers only make up 20 to 40% of the market and the major developers are allowed to do what they like," he added.

"Delays in construction are not often due to dishonest developers, and often simply caused by unforeseen circumstances in the supply of commodities or organisation of the many involved contractors," he claimed.

The new law is essentially an ‘optic' since private developers must purchase land from master developers and use government-regulated consultants and contractors, he said.

"This means the real estate market is already regulated. A coordination of all the different operating rules and regulations used by the major developers would be preferable since the developers all do things differently.

"The market is also regulated through competition between private developers and additional pressure from master developers such as Emaar, Nakheel, and Dubai Properties," he continued.

Additional regulation for developers, including greater transparency on true estimations on project completion would also assist in strengthening investor's faith in Dubai markets, he said.

The accounts could add to rising costs of construction for developers, who would then pass it on to buyers, he added.

However, Hiranandani said he is supportive of the proposed Home Owners Association, and the rights it awards to property owners.

Hircon International is a joint venture between Hiranandani Developers and ETA Star Property Developers. The joint venture is currently developing 23 Marina, a 90 storey tower that will potentially become the world's tallest residential building.

According to Hircon, 90% of the apartments have been sold since the launch in March, 2005 with a 50% price appreciation. The project will be completed in mid-2009.

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